What is a Balance Transfer Credit Card?
When it comes to transferring a balance on your credit card you likely want to know about balance transfers, right?
Well, you should know quite a few things about them before you decide to take one on.
That’s because you could actually be charged a fee for that transfer.
Now, you should first know that you can only transfer an amount up to the total of the credit limit on that card.
That means if you have a credit limit of $1,000 you can only transfer a balance of $1,000 (plus whatever fees you’re charged) even if the amount you’d like to transfer is $2,000.
What’s really happening here is that you’re using one credit card to pay off the balance of the other credit card. This can be a good idea if you’re able to get a new credit card that actually offers you a 0% interest rate.
You’ll be able to save a lot of money on the interest that you would have been paying with the first credit card if you left the balance on the first one.
That’s one of the biggest reasons that people choose to make these types of balance transfers.
Who Should Use a Balance Transfer?
If you’re currently saddled with high-interest rates on your credit cards you may want to look at a balance transfer.
It can move your debt from that high interest to a card that has low or no interest (at least for a period of time).
If you’re carrying a lot of different credit cards that all have balances on them and all have high-interest rates you may want to take a closer look at that as well.
Especially if you’re struggling to try and keep everything in check and make all of your monthly payments.
If you can put everything onto a single card that just might make a big difference for you and improve your ability to make the payments you need to.
Also, for those who simply don’t want to have to deal with the hassle of paying a lot of payments in a single month this type of process is actually going to consolidate your debt at the same time.
So you won’t have to worry about keeping track of those different payment dates.
Factors to Consider When Choosing a Balance Transfer Credit Card?
How Long is the Intro Period?
You want to make sure that you know how long you have with that 0% interest rate.
After all, it’s only going to give you a set amount of time (usually 12 to 18 months).
After you get to that point you’re going to have to pay interest, so you want to make sure that you’re getting as long of a period as you can.
It’s going to help you rack up the payments without all your money going into the interest and not really taking down the debt itself.
For those who are able to pay off their credit cards each month you don’t really need to worry a lot about interest because you’re already taking care of that problem.
It’s something you could just worry about at a later time.
But any credit card that you have is going to have some type of fees. If you aren’t going through all of the details on your credit card application that’s okay.
You generally get all of these fees listed right in the main body of the information. You want to be looking for things like:
These are the fees that are charged to you each year and they basically only allow you to have the card.
If you’re using a balance transfer card you’re generally not going to have one of these fees.
Balance Transfer Fee
If you’ve just opened a new account or if you have one of the really good cards you may actually get free balance transfers for a short amount of time.
Otherwise, you’re generally going to be paying as much as 3-5% of the amount that you transfer over.
Now, you want to make sure that you look at the rules if you do have an offer for no fee balance transfers and see how you can actually make it work.
Cash Advance Fee
This is another one that gets people into trouble.
It’s a fee that’s charged when you make a cash advance or if you use a credit card convenience check in some situations.
Foreign Transaction Fee
If you’re using your card to make any type of purchase in a foreign currency you can be charged this fee.
And that doesn’t even mean you have to be in a different country. You can be charged it anytime the currency that’s billed isn’t U.S. currency.
This is the annual percentage rate and it’s the interest that you’re going to pay over the course of a year.
Now, you’re not always going to get the APR that’s advertised on the materials because it’s based on how you use the card, your balances and of course any introductory periods that are being offered.
If you’ve been given a card with 0% APR for 15 months that means in the first 15 months you’re not going to be charged any interest.
After that 15 months, however, you’re going to end up paying APR on the balance that you have and any additional balance that you add to the card.
Now, the most important thing is to get a low APR card, but you want to be careful about this. It’s not as easy as you might think because it’s going to be based on your credit score.
If you have great credit that’s great for you. If you don’t you may want to look for fixed rate credit cards.
You want to make sure that you have some freedom and flexibility when it comes to your credit limit, but don’t let yourself get too overboard where you can go too wild.
You also want to make sure that you can consolidate everything you want to without running into problems.
If you can’t transfer all of the balances, add fees and interest and more then you’re going to have a hard time getting what you planned on.
Now, if you’re just getting started with credit and you don’t really know all of what you’re doing you may want to go with a card that has a low limit.
These cards are going to help you get started and help you better understand the process of using credit cards.
If you’re the type who gets into debt easily or the one who isn’t quite as responsible with your money this is definitely an important way to go and it’s going to make it easier for you to stay out of trouble.
If you have a higher limit as you get to know more about credit it may help because it can keep your utilization rates low (as long as you aren’t spending too much of it).
Just make sure that you’re paying attention to yourself and what you’re actually going to be able to do. You don’t want to get yourself in trouble with credit.
Pros and Cons of Balance Transfers Cards
Before choosing a balance transfer card, make sure you fully understand the pros & cons of such type of cards:
Low Introductory APR
You can cut down on how long you’re going to be in debt by working with a low APR.
That’s because more of the money that you pay is actually going to the debt itself and not to the interest rate.
Balance Transfer Fee
Look for a card that’s going to offer you 0% APR for your balance transfer and even that will offer you that same rate for purchases for a limited time.
If you’re looking to turn all those payments into a single payment you’re definitely going to want to take a look at this option.
It lets you pull everything into one card, with one interest rate (and 0% is a great way to go) and a single payment. All of that is going to make it easier for you to keep track of everything.
Increase Your Credit
This isn’t necessarily guaranteed, but it’s actually possible to lower your debt to credit ratio or your credit utilization rate.
Then you can improve the credit rating that you’re given.
The downside is you’re not going to get a balance transfer card that also offers you rewards.
This means you’re not going to get the benefits that you might get on some of the other cards that you’ve been checking out.
Limits on Transfers
You may not be able to transfer all of the different types of debt that you were hoping to. There are situations where you may not be able to transfer from specific types of accounts as well.
Total Amount Limitations
You’re going to have a set credit limit and that limit is going to be the total amount that you’re able to transfer.
If you were hoping to transfer more than that you’re not going to have the opportunity and that could mean you’re still stuck with multiple payments and cards to pay off.
Balance Transfer Card Requirements
In general, you’re going to need to meet a few important requirements in order to get a balance transfer card.
For one thing, you usually need a FICO score of at least 650. You may want to check out what the website of the company says because it may tell you that you can get a card with a poor, average or good score.
You may also be able to prequalify for a credit card, which is going to be an even more important aspect.
Note that your debt-to-income ratio is going to be an important aspect to getting that card, as well as the credit score you have.
If you have delinquent accounts or bankruptcy declarations you may have trouble.
How To Maximize Your Balance Transfer Credit Card?
Use that Promo Period
Make the absolute best of the balance transfer promo period.
Use this time to transfer as much as you can and to make as big of a dent in it as you possibly can.
All of your money is going to the debt now, not toward an interest payment and you want to make sure that you’re getting as much paid down as you can.
If you aren’t making payments and getting it paid down even when it’s at 0% you may want to look into a new option.
Take Advantages of Balance Transfer
You may be able to get a low APR (not 0%) and also get the balance transfer fee waived.
If that’s available you definitely want to see how you can make it work for you and if it’s going to help you pay down that debt even faster.
Look at the situation you’re in and make sure you know what you’re getting into.
Pay Attention to Terms
There are always going to be terms and conditions so you want to make sure you look at those.
You may want to spend on your 0% credit card, but first, you want to be sure that your interest rate applies to new purchases as well as transfers.
Plus, you want to make sure you’re not using the card you just transferred a balance from.
You may only be able to use the 0% or low rate for a transfer and you may have new purchases billed at a high-interest rate.
Make sure that you know exactly what you’re getting into and just how you’re going to be billed and charged for the interest.
Keep Making Payments
If you have a payment due on your credit card balance and it hasn’t transferred to the new card yet you want to make sure that you are still making the payments.
Don’t skip out because you’re in the process of a transfer. Make sure that you pay attention to the due dates and keep them up until you get a confirmation that the transfer has happened.
You may even want to make sure that once you get the transfer completed you have automatic payments set up.
If you’re late even once you could actually end up losing out on the promotional rate or offer that you’ve been given. You definitely don’t want that.
Make a Plan
You should be paying attention to just how you’re actually going to pay off that balance transfer.
After all, you want to do as much of it as you can before the promotional period is gone.
Also, make sure you know how you’re going to pay for any other balances that you weren’t able to transfer at the same time.
Balance Transfer or Personal Loan?
You may have been told that it’s only a good idea to get a balance transfer if you can pay it off during the promo period.
After all, once that ends you’ll have a much higher rate of interest again. On the other hand, a personal loan has a fixed rate of interest that can be appealing.
The downside is that you’re going to have a secured loan with a personal loan.
That means you’re going to have to put something in the mix as your collateral and that may not be something you want to get involved with.
The creditor could come after your assets if there’s ever a problem with the payments.